INSTRUCATION
instruct16_09
Income Declaration Scheme, 2016-reg
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CASE LAWS
2016-TIOL-2297-HC-DEL-IT + Story
SHAKTI BHOG FOODS LTD Vs DCIT: DELHI HIGH COURT (Dated: September 21, 2016)
Income Tax - Sections 4(1), 139(9), 140A, 153A, 226(3) & 240.
Keywords: self assessment - recovery of tax - penalty - interest - rectification of loss - non payment of tax - defect.
Whether an assessee upon filing return u/s 139 and payment of tax u/s 140A by self assessment, claiming allowance of the advance tax in the tax payable, admits the liability that has arisen under the Act to pay the tax on the total income as is computed by the assessee and duly quantified in the return - YES: HC
Whether upon invalidation of the return of income filed by the assessee, liability admitted by assessee in earlier order should be refunded without proceeding for completion of assessment, if any - NO: HC
The assessee sought quashing of the notice issued u/s 226(3) and a further direction to the Income tax authorities to vacate the orders issued by it- for attaching its bank accounts. Assessee is an unlisted public limited company, engaged amongst others, in the integrated business of purchasing, transporting, storing, processing, handling of food grains (i.e. rice and wheat) and thereafter selling the same in the domestic and overseas market. For assessment year 2013-14, it filed return of income on 31.03.2014 declaring total income of Rs. 289,61,04,740. On the said income, total tax and interest payable in accordance with the provisions of the Act worked out to Rs. 113,60,91,737/-. Against this, the Petitioner claimed credit of prepaid taxes amounting to Rs. 27,63,84,333/-. Since the Petitioner was facing liquidity crunch at that point of time, the Petitioner, therefore, in the return of income showed Rs. 85,97,07,400/- as balance tax payable. The Petitioner also paid Rs. 65 Crores on different dates in April 2014 thereby leaving the balance of tax along with interest payable at Rs. 20,97,07,400/-. The Petitioner received notice dated 29.10.2014 issued by the Respondent u/s 139(9) By that notice, the revenue's position was that non-payment of tax and interest, as shown in the return of income, constituted "defect" under Explanation (aa) to the proviso of section 139(9). The Petitioner was therefore, required to rectify the defect within the specified period, failing which the return of income was to be treated as invalid return. As the defect was not rectified, the revenue issued a letter dated 03.11.2014 declaring the return of income filed by the Petitioner for the assessment year 2013-14 as invalid return under section 139(9). The petitioner, on 26.12.2014 through a letter to the revenue, contended that the defect of non-payment of tax and interest was not rectified due to the financial crisis faced by it. After declaring the above return of income as invalid return, the revenue invoking coercive action for recovery of the tax and interest shown in the above invalid return of income, issued impugned notice dated 12.03.2015 under section 226(3), thereby attaching various bank accounts of the Petitioner maintained by the respondent bank, without any prior or even any subsequent notice to it.
Assessee had argued that once the return of income has been treated as invalid, then, the said return of income would become non est, thereby, ousting all the officers of the revenue from taking cognizance whatsoever, of the information furnished in the said return of income. Reliance was placed upon Section 139 (9) particularly the non-obstante clause to contend that in case an assessee fails to rectify the defect in the return of income within the stipulated time period, then, overriding all other provisions of the Act, the said return of income shall be treated as invalid return of income and it would be deemed that no return of income has been filed by the assessee. In other words, the provisions of the Act would then apply as if the assessee has not furnished any return of income. It is next contended that liability to pay self-assessment tax under Section 140A arises only on the basis of the return of income furnished, inter-alia, under section 139 of the Act. In other words, existence of valid return of income under section 139 is sine-qua-non to fasten liability for payment of self-assessment tax under section 140A.
Assessee further argued that since the return of income filed by it was treated as invalid by the revenue, the tax and interest shown as payable in the said invalid return of income would become nugatory and would be of no consequence. Further, submitted senior counsel that presently, no valid demand of tax and interest has been raised by the revenue upon the petitioner inasmuch as neither any notice has been issued u/s 156 nor any intimation u/s 143(1) or any order, much less any assessment order. Consequently, since no self-assessment tax or assessed tax is due against the petitioner, the revenue is not clothed with the jurisdiction to recover any amount on that aspect. It was stated that after filing of the present petition, the assessee filed a belated return, claiming total income of Rs. 139.60 crores, on which after adjusting amounts paid, a refund of over Rs. 21 crores was claimed. Later, during pendency of the present proceedings, search proceedings took place in the petitioner's premises, after which it received notice u/s 153A. In response, it filed its returns for the block period, including the assessment years in question in this case, whereby it claimed refund of Rs. 30.17 crores after claiming deduction under Chapter VI A of the Act. In these circumstances, the revenue has no authority to retain the amounts or insist upon the continuation of the attachment orders.
The Counsel for the Revenue argued that it was an admitted position, that for AY 2013-14, assessee filed its return of income on 31.03.2014 declaring an income of Rs. 289,61,04,740/-. On the said income, total tax and interest payable then was Rs. l13,60,91,737/-. Hence it was clear and evident that the total admitted tax and interest liability payable at that point of time amounted to Rs. 113,60,91,737/-. After adjusting pre-paid taxes amounting to Rs. 27,63,84,333/-, the balance amount payable was Rs. 85,97,07,400/-. Thereafter the petitioner paid Rs. 65 crores only on different dates in April 2014. Yet, the balance of admitted tax and interest payable amounts to more than Rs. 24 crores. It was highlighted that by virtue of Section 140A (3) there was no manner of doubt that the Petitioner was an assessee in default and therefore, all the resultant consequences are attracted and apply to it under the provisions of the Act.
Held that,
++ there is no dispute that when the petitioner filed its return, it admitted tax liability. Though the return was initially without the full tax amount, it claims that after filing returns it deposited Rs. 65 crores. There was yet a shortfall of about Rs. 24 crores; since this shortfall was not made good- not because the assessee disclaimed liability, but rather because of its financial constraint, AO declared the return invalid. When the revenue has sought to take coercive measures, the assessee contends that because of the declaration of the AO u/s 139 (9), the amounts paid or deposited by it, are refundable and that the return was in effect a nullity; consequently the revenue has no authority to claim the amounts that it does. It relies on Section 139 (9), 140A and Section 240. In Shelly Enterprises, discussing a full bench judgment of the Gujarat HC, the SC observed that an assessee upon filing return u/s 139 and payment of tax u/s 140A by self- assessment, claiming allowance of the advance tax in the tax payable according to him admits the liability that has arisen under the Act to pay the tax on the total income as is computed by the assessee and duly quantified in the return. The court rejected the assessees contention that upon invalidation of the return, such admitted liability should be refunded, as a “startling contention”. The SC upheld the view that liability to pay tax arises because of Section 4 (1) which does not depend on an assessment order, but upon the rate or rates applicable for a given AY. The liability to pay tax arises on the total income on the publication of rates; such tax is to be computed by the assessee in accordance with the provisions of the Act. By the process of self-assessment, the assessee is required to pay tax on the basis of his return and such tax is treated as assessed tax. Therefore, until it is disturbed by any further regular assessment, it remains as tax levied and collected in accordance with law. The Gujarat Full Bench had ruled that on failure of a regular assessment being made within the time prescribed or in the event of annulment of the assessment order pursuant to which any further demand is required to be made u/s 156, no consequence of refund of the entire tax collected according to the total income shown in the returns filed by the assessee can ensue and such tax which is collected on the basis of the return filed by assessee remains a valid and legal recovery in accordance with the provisions of the said Act and there is no question of any violation of Article 265 of the Constitution of India in respect of the tax so recovered on the basis of the total income shown by the assessee in his return. The Gujarat HC had also said that Section 240 as it stood prior to the addition of the proviso, the entire amount of tax properly chargeable under the Act was required to be refunded; therefore, the provision contained in clause (b) of the proviso to section 240 clarified what was always implicit, namely, was to refund the amount which exceeded the tax which was properly chargeable under the Act;
++ this court is of opinion that the reliance on the Karnataka HC ruling in K. Nagesh is inapt. That court, with respect, appears to have overlooked the salient aspect underscored by the Supreme Court, i.e., the levy of tax is under Section 4 (1); the rates may vary. Likewise, filing of return, self assessment tax, advance tax, etc. and provisions which flesh out the mechanisms under the Act for collection cannot be construed literally. Even Section 240 presupposes an order, leading to refund. Now, it is moot whether the nullification on ground of non-compliance due- not due to denial of liability - but other reasons, automatically leads to a situation contended by the assesseee. Facially, the contention is insubstantial, because Section 139, even while obliging the officer to a course of action, i.e., declaring the return invalid, also says significantly that “and the provisions of this Act shall apply as if the assessee had failed to furnish the return.” Furthermore, as clarified by the Supreme Court, Section 240 itself is premised upon some authority of the revenue officials to decide whether the entire amount deposited, or part of it, or none at all, is to be refunded. Besides the above conclusion, this court is also of the view that the assessment is at large, given that the search resulted in a notice to the assessee u/s 153A. No doubt, it has claimed refund; yet those issues are to be adjudicated. Therefore, its claim cannot succeed. In the light of the above conclusions, the writ petition is without merit. It is therefore, dismissed.
Assessee's appeal dismissed
2016-TIOL-2296-HC-MUM-IT
BAJAJ AUTO LTD Vs CIT: BOMABY HIGH COURT (Dated: September 08, 2016)
Income Tax - Sections 144, 145(1) & 256(1).
Keywords: new method of accounting - regular books of accounts - bona fide reasons - permanent arrangement.
Whether when the new method of accounting adopted by the assessee is for bona fide reasons, such assessee intends to make this new method his regular method of accounting, there can be any objection on the part of Department in that regard - NO: HC
The assessee is a auto manufacturing company. Up to the end of the accounting year relevant to AY 1975-76, the assessee, who was a manufacturer of scooters, three wheelers and their parts, had been valuing its closing stock of stores, spares, tools and materials and WIP on the basis of cost or market value whichever was lower. For determining the cost for the purposes of such valuation, the assessee had adopted the basis of "lowest purchase price during the year". Whilst determining the closing stock as on 30th June, 1976, though the stock was valued on the basis of "cost or market value whichever is lower", the cost itself was considered on "weighted average cost" basis. This was on the footing that after coming into effect of the Manufacturing and Other Companies (Auditor's Report) Order, 1975, the assessee, in consultation with its auditors, decided to change the method of ascertaining the cost for the purpose of stock valuation so as to adopt a more scientific method of determining the cost. This change in the method of determining the cost took into account both opening quantities (their value being already declared in the earlier assessment year as value of the closing stock) as well as quantities purchased at different rates during the year and the cost of stock was arrived at by dividing the value of opening stock plus the value of purchases by the quantity of opening stock plus purchases during the year. This method of determining the cost, known as weighted average cost, according to the assessee, was one of the normally accepted methods of determining the cost for the purpose of stock valuation. This change resulted in the inventory and profits being shown in the accounting year relevant for A.Y. 1977-78 less by Rs.12,03,509/. AO did not accept the change and made an addition of Rs.12,03,509/. On appeal, CIT(A) set aside the order of AO, deleting the addition, holding that the change in the method of valuation of closing stock was bonafide and proper. On further appeal, the Tribunal set aside the order of CIT(A) and restored the order of AO. The assessee had changed its method of ascertaining the cost for the purpose of stock valuation and not the method of accounting employed by the assessee for the purpose of stock valuation as such. The method, as before, continues to be "cost or market value whichever is lower". It was only for determining the cost for the purpose of this method that instead of "lowest purchase price" during the year, the basis of "weighted average cost" was adopted as the latter was a more scientific basis for accounting the closing stock.
Held that,
++ the Madras HC in the case of IndoCommercial Bank Ltd. Vs. Commissioner of Income Tax, 44 ITR 22, observed that it is the assessee and not the Department that has the choice of the method of accounting. The Department is bound by the choice of the assessee except in cases specified in the proviso to Section 13 (Section 145 of the present Act, as it then applied, being in para materia with Section 13 in this behalf). In the light of the above statement of law, what one needs to consider whilst accepting or rejecting a new accounting method proposed by the assessee is, whether the new method is adopted bona fide and whether the assessee intends to make this new method his regular method of accounting. As for the bona fides of the adoption of this new method by the assessee in the present case, the assessee's case has been that the new method was adopted in the face of the Manufacturing and Other Companies (Auditor's Report) Order, 1975. The Order applies to every company, which is engaged inter alia in manufacturing, mining or processing. The order requires that in the case of manufacturing, mining or processing companies, the auditor's report on the accounts must include a statement whether the company is maintaining proper records to show full particulars including quantitative details and situation of fixed assets; whether these fixed assets have been specifically verified by the management; and whether the same have been properly dealt with in the books of accounts. The auditor must further certify his satisfaction that the valuation of the stocks is fair and proper and in accordance with the normally accepted accounting principles. It is the assessee's case that at the relevant time, methods of accounting for measurement of inventories ordinarily adopted by companies were based on accounting standards followed internationally. These required the historical cost of inventories to be accounted by using the FIFO formula or the "Weighted Average Cost" formula. The weighted average cost formula adopted by the assessee, thus, accorded with the international standards and was a more scientific formula or method than the earlier used "lowest cost of purchase in the year" formula. In fact, both AO as well as the CIT(A) came to an express finding that the formula adopted by the assessee was more scientific than the one which was adopted earlier. The adoption of the new method by the assessee is accordingly clearly bona fide;
++ as for the requirement of regular employment of the method of accounting, it is pertinent to note that the Tribunal does not dispute that the new system of accounting was followed by the assessee in the subsequent assessment years as well. This clearly supports the assessee's case that the method was meant to be adopted as a regular method for the future. The Tribunal appears to have been swayed by the fact that by means of this new method of determining the cost, the assessee was having the benefit of taking the cost of items remaining in the closing stock on the basis of the lowest purchase price during the year with further reduction in the cost by following the weighted average cost formula. The method of determining the cost of items remaining in the closing stock is a part of a system of valuation of closing stock and if this method is changed, it would automatically lead to a change in the valuation of the closing stock. This is inevitable for the first year of change. What we need to consider in every such case is whether the exercise carried by the assessee is bona fide and is a permanent arrangement which is to be followed year after year, and not what immediate benefit accrues to the assessee for the particular year in which the change is introduced. Thus, it is clear that so long as the change made by the assessee in his method of accounting is bona fide and amounts to a permanent arrangement to be followed, the Revenue has no cause to complain. The conclusion drawn by the Tribunal that the change in the method of valuation adopted by the assessee, namely, from "lowest price during the year" to the "weighted average cost" formula was not justified, is without any merit. We accordingly, answer questions (a) and (b) in the negative, i.e. in favour of the assessee and against the Revenue;
++ so far as question (c) is concerned, Senior Counsel appearing for the assessee, fairly states that the issue is covered by the decision of this Court in the case of Commissioner of Income Tax Vs. Zenith Steel Pipes and Industries Ltd 2009-TIOL-38-HC-MUM-IT. In Zenith Steel, our Court, relying on the decision of Sam Faction Wear Pvt. Ltd. Vs. Commissioner of Income Tax, 209 ITR 214, held that packing expenses of goods exported did not qualify for an allowance u/s 35B(1)(b). The question is, accordingly, answered in the affirmative, in favour of the Revenue and against the assessee.
Assessee's appeal partly allowed
2016-TIOL-2567-CESTAT-MUM + Story
MERCEDES-BENZ INDIA PVT LTD Vs CCE: MUMBAI CESTAT (Dated: August 17, 2016)
CX - Deduction claimed by the appellant of the turnover discount is legitimate - no reason for not allowing such discount to non-performers as it will encourage the dealers to work more efficiently and get orders for cars which will benefit the dealers as well as the appellant - adjustment of excess payment of duty to the short payment of duty, on finalisation of provisional assessment, is to be allowed - Appeals allowed: CESTAT [para 7, 8, 9]
Appeals allowed
